Computer-implemented methods, apparatuses and computer program products for use in managing the leverage exposure of a plurality of financial institutions

Abstract

The application discloses a system of networked computing apparatus, software and methods of operation comprising a settlement exposure analysis node, a plurality of financial institution nodes, one for each participating financial institutions, and a regulated arranger node. The nodes are configured to, in use, transfer data representative of initial net settlement exposures of the parfinancial institutions from the financial institution nodes to the settlement exposure analysis node, transfer data representative of the values of a repo trade matrix x i,j generated by the settlement exposure analysis node to the financial institution nodes, and, based on data representing approval of the repo trade matrix x i,j by all of the participating financial institution nodes, settle trade orders between pairs of the financial institutions i,j based on the trade values in the repo trade matrix x i,j for those counterparties.

1 . A computer-implemented method for use in managing the leverage exposure of a plurality of financial institutions, comprising:
 receiving, by a settlement exposure analysis node, for each i of a plurality n of financial institutions i=1 . . . n, data representative of the initial net settlement exposure E i,j  of that financial institution i to others of the plurality of financial institutions as counterparties j=1, . . . n, the net settlement exposure E i,j  indicated as net positive or negative cashflow obligations between the financial institutions at a target settlement date corresponding to a date intended for a set of repurchase agreements to be determined and entered into;   establishing, by the settlement exposure analysis node, a settlement exposure matrix containing the initial net settlement positions E i,j  for the plurality of financial institutions, and determining, at the settlement exposure analysis node:   for each financial institution i of the plurality of financial institutions, a total initial net settlement exposure to the j=1 . . . n counterparties as:   
       
         
           
             
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         for each financial institution i of the plurality of financial institutions, a total initial gross settlement exposure to the j=1 . . . n counterparties based on an absolute amount of the settlement exposure as: 
       
       
         
           
             
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         establishing, by the settlement exposure analysis node, a repo trade matrix x i,j  for holding values of symmetrical trades for a set of bilateral repurchase agreements to be determined and entered into between financial institutions i,j=1 . . . n; 
         determining, by the settlement exposure analysis node using an optimisation function, values of the repo trade matrix x i,j  that minimise a total gross new settlement exposure for all of the financial institutions i,j=1 . . . n, the total gross new exposure being calculated by: 
       
       
         
           
             
               
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         wherein the optimisation is subject to the constraint that for each financial institution i of the plurality of financial institutions, a total new gross settlement exposure to the j=1 . . . n counterparties after the trades is less than the total initial gross settlement exposure to the j=1 . . . n counterparties, such that:
   ∀ iΣ   j=1   n   |x   i,j   +E   i,j |≤Σ j=1   n   |E   i,j | and;
 
 
         causing, by the settlement exposure analysis node, to be transmitted to one or more financial institution nodes each accessible by one of the financial institutions, data representative of the values of the repo trade matrix x i,j , the values of the repo trade matrix x i,j  being usable, on approval by the financial institutions, to settle trade orders between the financial institutions i,j=1 . . . n to reduce a leverage exposure for each of the financial institutions i,j=1 . . . n. 
       
     
     
         2 . A method as claimed in  claim 1 , wherein determining, using an optimisation function, values of the repo trade matrix x i,j , is further subject to the constraint that each trade in the trade matrix x i,j  reduces the gross settlement exposure for each counterparty i,j to that trade. 
     
     
         3 . A method as claimed in  claim 1 , wherein in determining, using an optimisation function, values of the repo trade matrix x i,j , the trades are all to use the same price. 
     
     
         4 . A method as claimed in  claim 1 , wherein in determining, using an optimisation function, values of the repo trade matrix x i,j , the net of all trades is zero such that, for each financial institution i of the plurality of financial institutions, the total new net settlement exposure to the j=1 . . . n counterparties is equal to the total initial net settlement exposure to the j=1 . . . n counterparties. 
     
     
         5 . A method as claimed in  claim 1 , wherein the result of transacting the trades according to the values of the repo trade matrix x i,j  is such that the leverage exposure of each financial institution i is reduced by half of the total gross value of the repurchase agreement trades with each of the counterparties j. 
     
     
         6 . A method as claimed in  claim 1 , wherein determining, using an optimisation function, values of the repo trade matrix x i,j , is subject to one or more additional constraints received at the settlement exposure analysis node, including:
 a maximum absolute total exposure for the values of the trades for a given financial institution i; and/or   a limit on the settlement exposure between given counterparties i,j before and after the trades; and/or   an upper and/or lower limit for the value of a trade between given counterparties i,j.   
     
     
         7 . A method as claimed in  claim 1 , wherein one of the financial institutions i participating the bilateral repurchase agreements is a central clearing counterparty (CCP). 
     
     
         8 . A method as claimed in  claim 1 , wherein the calculation of the total gross new exposure to be minimised using an optimisation function is transformed to a linear form: 
       
         
           
             
               
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         where the calculation is subject to the two linear constraints:
   ∀ i,ja   i,j   ≥x   i,j   +E   i,j   ,a   i,j   ≥−x   i,j   −E   i,j 
 
 
         and wherein the optimisation function is a linear optimisation function. 
       
     
     
         9 . A method as claimed in  claim 1 , further comprising:
 causing, by a financial institution node accessible by a financial institution i, to be transmitted to the settlement exposure analysis node the data representative of initial net settlement exposures E i,j  of that financial institution i to others of the plurality of financial institutions as counterparties j=1, . . . n;   receiving, by the financial institution node, data representative of the values of the repo trade matrix x i,j  determined by the settlement exposure analysis node.   
     
     
         10 . A method as claimed in  claim 9 , further comprising:
 causing, by the financial institution node, to be transmitted to settlement exposure analysis node data representative of one or more additional constraints to be placed on the determination of the repo trade matrix x i,j  by the settlement exposure analysis node.   
     
     
         11 . A method as claimed in  claim 9 , further comprising:
 causing, by the financial institution node, to be transmitted data representing approval of the repo trade matrix x i,j  to settle trade orders between the financial institution i and each of the j=1 . . . n counterparties.   
     
     
         12 . A method as claimed in  claim 1 , comprising:
 receiving, by a regulated arranger node, from a plurality of financial institution nodes, data representative of initial net settlement exposures E i,j  of each financial institution i=1, . . . n to others of the plurality of financial institutions as counterparties j=1, . . . n;   validating, by the regulated arranger node, the data representative of initial net settlement exposures E i,j ;   sending, by the regulated arranger node, to the settlement exposure analysis node, the data representative of initial net settlement exposures E i,j ;   receiving, by the regulated arranger node, from the settlement exposure analysis node, data representative of the values of the repo trade matrix x i,j  determined by the settlement exposure analysis node;   validating, by the regulated arranger node, the data representative of the values of the repo trade matrix x i,j ;   sending, by the regulated arranger node, to the plurality of financial institution nodes, the data representative of the values of the repo trade matrix x i,j ;   by the regulated arranger node, receiving or generating based on predetermined acceptance conditions determined by one or more of the financial institutions, data representing approval of the repo trade matrix x i,j  by all of the financial institutions; and   causing, by the regulated arranger node, trade orders to be executed between pairs of the financial institutions i,j based on the trade values in the repo trade matrix x i,j  for those counterparties.   
     
     
         13 . A method as claimed in  claim 12 , wherein causing, by the regulated arranger node, trade orders to be executed comprises:
 generating, based on the values of the repo trade matrix x i,j , trade execution instructions for the repurchase agreements between the financial institutions i,j=1 . . . n; and   causing the trade execution instructions to be sent to a multilateral trading facility node for execution of the repurchase agreements by straight through processing.   
     
     
         14 . A method as claimed in  claim 1 , wherein one or more of the settlement exposure analysis node, regulated arranger node and at least one financial institution node securely store the data representative of initial net settlement exposures E i,j , data representative of the values of the repo trade matrix x i,j , and data representing approval of the repo trade matrix x i,j  by all of the financial institutions, in a distributed ledger maintained by at least each of the nodes based on a consensus mechanism. 
     
     
         15 . A method as claimed in  claim 14 , wherein the distributed ledger maintained by the nodes stores instructions implementing smart contracts which when executed, cause a processor of one of the nodes to, based on data representing approval of the repo trade matrix x i,j  by all of the participating financial institution nodes, settle trade orders between pairs of the financial institutions i,j based on the trade values in the repo trade matrix x i,j  for those counterparties. 
     
     
         16 . A method as claimed in  claim 15 , wherein the settlement exposure analysis node, regulated arranger node and at least one financial institution node are configured, at least in part by the instructions implementing smart contracts, such that:
 data representative of initial net settlement exposures E i,j  is periodically issued by the financial institutions;   the resulting data representative of the values of the repo trade matrix x i,j  is automatically generated by the settlement exposure analysis node; and   the regulated arranger node automatically causes trade orders to be executed between pairs of the financial institutions i,j based on the data representing approval of the repo trade matrix x i,j  by all of the participating financial institution nodes.   
     
     
         17 . A computing apparatus for providing a settlement exposure analysis node for use in managing the leverage exposure of a plurality of financial institutions, comprising:
 one or more processors; and   memory comprising instructions which when executed by one or more of the processors, causes the processors to:   receive, for each i of a plurality n of financial institutions i=1 . . . n, data representative of the initial net settlement exposure E i,j  of that financial institution i to others of the plurality of financial institutions as counterparties j=1, . . . n, the net settlement exposure E i,j  indicated as net positive or negative cashflow obligations between the financial institutions at a target settlement date corresponding to a date intended for a set of repurchase agreements to be determined and entered into;   establish a settlement exposure matrix containing the initial net settlement positions E i,j  for the plurality of financial institutions, and determine:   for each financial institution i of the plurality of financial institutions, a total initial net settlement exposure to the j=1 . . . n counterparties as:   
       
         
           
             
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         for each financial institution i of the plurality of financial institutions, a total initial gross settlement exposure to the j=1 . . . n counterparties based on an absolute amount of the settlement exposure as: 
       
       
         
           
             
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         establish a repo trade matrix x i,j  for holding values of symmetrical trades for a set of bilateral repurchase agreements to be determined and entered into between financial institutions i,j=1 . . . n; 
         determine, using an optimisation function, values of the repo trade matrix x i,j  that minimise a total gross new settlement exposure for all of the financial institutions i,j=1 . . . n, the total gross new exposure being calculated by: 
       
       
         
           
             
               
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         wherein the optimisation is subject to the constraint that for each financial institution i of the plurality of financial institutions, a total new gross settlement exposure to the j=1 . . . n counterparties after the trades is less than the total initial gross settlement exposure to the j=1 . . . n counterparties, such that:
   ∀ iΣ   j=1   n   |x   i,j   +E   i,j |≤Σ j=1   n   |E   i,j | and;
 
 
         cause to be transmitted to one or more financial institution nodes each accessible by one of the financial institutions, data representative of the values of the repo trade matrix x i,j , the values of the repo trade matrix x i,j  being usable, on approval by the financial institutions, to settle trade orders between the financial institutions i,j=1 . . . n to reduce a leverage exposure for each of the financial institutions i,j=1 . . . n. 
       
     
     
         18 . The computing apparatus of  claim 17  for providing a financial institution node, accessible by a financial institution i, for use in managing the leverage exposure of a plurality of financial institutions, comprising:
 one or more processors; and 
 memory comprising instructions which when executed by one or more of the processors, causes the processors to: 
 cause to be transmitted to a settlement exposure analysis node data representative of initial net settlement exposures E i,j  of that financial institution i to others of the plurality of financial institutions as counterparties j=1, . . . n, the net settlement exposure E i,j  indicated as net positive or negative cashflow obligations between the financial institutions at a target settlement date corresponding to a date intended for a set of repurchase agreements to be determined and entered into; 
 receive data representative of the values of a repo trade matrix x i,j  determined by the settlement exposure analysis node, the repo trade matrix x i,j  holding values of symmetrical trades for a set of bilateral repurchase agreements to be entered into between the financial institution i and the plurality of other financial institutions as counterparties j=1, . . . n to reduce a leverage exposure for each of the financial institutions i,j=1 . . . n; and 
 causing to be transmitted data representing approval of the repo trade matrix x i,j  to settle trade orders between the financial institution i and each of the j=1 . . . n counterparties. 
 
     
     
         19 . The computing apparatus of  claim 18  for providing a regulated arranger node for use in managing the leverage exposure of a plurality of financial institutions, comprising:
 one or more processors; and 
 memory comprising instructions which when executed by one or more of the processors, causes the processors to: 
 receive from a plurality of financial institution nodes, data representative of initial net settlement exposures E i,j  of each financial institution i=1, . . . n to others of the plurality of financial institutions as counterparties j=1, . . . n; 
 validate the data representative of initial net settlement exposures E i,j ; 
 send to the settlement exposure analysis node, the data representative of initial net settlement exposures E i,j ; 
 receive from the settlement exposure analysis node, data representative of the values of the repo trade matrix x i,j  determined by the settlement exposure analysis node; 
 validate the data representative of the values of the repo trade matrix x i,j ; 
 send to the plurality of financial institution nodes, the data representative of the values of the repo trade matrix x i,j ; 
 receive or generate based on predetermined acceptance conditions determined by one or more of the financial institutions, data representing approval of the repo trade matrix x i,j  by all of the financial institutions; and 
 cause trade orders to be executed between pairs of the financial institutions i,j based on the trade values in the repo trade matrix x i,j  for those counterparties. 
 
     
     
         20 . The computing apparatus of  claim 19 , wherein the settlement exposure analysis node, regulated arranger node and at least one financial institution node are configured to, in use, transfer data representative of initial net settlement exposures of the participating financial institutions from the financial institution nodes to the settlement exposure analysis node, transfer data representative of the values of a repo trade matrix x i,j  generated by the settlement exposure analysis node to the financial institution nodes, and, based on data representing approval of the repo trade matrix x i,j  by all of the participating financial institution nodes, settle trade orders between pairs of the financial institutions i,j based on the trade values in the repo trade matrix x i,j  for those counterparties. 
     
     
         21 .- 24 . (canceled)